Pension Trends Elaine Fultz, Director ILO Subregional Office for Eastern Europe and Central Asia 1 September 2008

Political Economy of Pension Reform Early shocks of transformation Financial imbalance in national pension scheme Flattening and lowering of pension benefits Shift of power for pension policy making from Labour/Welfare Ministry to Finance Ministry Neoliberal economist links with World Bank Pension privatization

Political economy (continued) Circumvention of normal channels for pension policy making –Weak reform deliberations Unsettled design features –Undefined benefit package –Unfunded “transitional financing costs” –Inadequate regulation of private savings funds

Poland - “Hole” in pension finance due to privatization Chlon, Agnieszka, "The Polish Pension Reform of 1999," in Fultz, E., Ed., Pension Reform in Central and Eastern Europe, Vol. 1, ILO: Budapest, 2002.

Retirement ages in EU member states, 2007 Current lawMenWomen Bulgaria , increasing to 60 in 2009 by 6 months per year Czech Republic with no children; with children, depending on # Estonia1998, in force , increasing to 63 in 2016 by 6 months every second year Hungary , increasing to 62 in 2009 by 1 year every second year Latvia (from 1 July 2007), increasing to 62 in 2008 by 6 months per year Lithuania1994, Poland1998 (in force, 1999) 6560 Romania2000 (in force April 2001) 63 (in the first quarter of 2007), increasing to 65 in 2014 by 3 mos/year 58 (in the first quarter of 2007), increasing to 60 in 2014 by 3 months per year Slovak Republic2003 (in force Jan. 2004) 6260 with no children, increasing to 62 in 2009;women with children will reach 62 by , depending on the no. of children Slovenia199962, increasing to 63 in and 8 months increasing to 61 in 2023*

Hungary – Private investment returns(end of 2005) 6.8% average annual return 6.1% average inflation 0.7% positive return to workers

EU member states – privatization scorecard Countries with mandatory, privately managed individual savings accounts Countries without such schemes Hungary (1998)Czech Republic Poland (1999)Lithuania (1) Latvia (2001)Slovenia Estonia (2002) Bulgaria (2002) Slovak Republic (2005) Romania (2008) (1) The second tier is voluntary for all workers, both current and future, but is financed by a diversion of contributions from the public pension system for each worker who joins.

Other followers of privatization policy prescription Croatia Kazakhstan Kosovo Macedonia Armenia Kyrgyzstan Turkmenistan

Where do we stand ? Benefit package still undefined Retirement from mixed systems starting soon Damage control –Limit private administrative charges –Confront transition costs –Define “equity” for those who made disadvantageous choice

Where do we stand – neglected issues Collection of contributions Pension scheme governance Aging and pension finance Gender equality

Improving the collection of pension contributions Insist that govts lead by example Redefine non-compliance as social issue Invest in enforcement Piggyback on existing procedures Reduce the compliance burden Radical changes can be destabilizing Tackle shadow economy step by step

Employment rates, 2005 Lisbon Strategy target: 70% (15-64) and 50% (55- 64) by 2010 Note:Figures of Bulgaria, Croatia and Romania are not included in the calculation of the EU averages, since Croatia is still in the accession process and Bulgaria and Romania joined the EU in Source:EUROSTAT, 2005 employment tables.

Average pension for a woman (as a percentage of the average pension for a man), Poland, simulation for 2050 With continuing early retirement for women (60, 65) With equal retirement at age 65 Old system 7581 New system 5773